Thai Beverage earnings disappoint, but analysts still positive

Thai baht notesThai baht notes

Thai Beverage earnings disappointed expectations, but analysts generally remain positive on the stock.

On Monday, Thai Beverage reported its fiscal full-year net profit dropped 40.2 percent on-year to 20.73 billion Thai baht amid lower profit contributions from the spirits and beer businesses and a wider loss in the non-alcoholic beverage business. It also pointed to expenses related to a business acquisition and a Sabeco-related finance cost.

The beer maker’s shares tumbled 5.97 percent to S$0.63 by 3:00 P.M. SGT in the wake of the earnings.

But DBS said in a note on Tuesday called it the “darkest before the dawn,” saying that the negatives are priced in by the stock’s more than 28 percent drop year-to-date.

That was despite ThaiBev saying improvement in the Thai economy and recovering earnings among some low-income households wasn’t translaing into a consumption boost.

“Household debts remain at high levels and households have been earmarking a portion of their income for repaying debts,” the company said, adding that a new elderly fund tax and higher product prices after an excise tax increase at end-2017 has hurt consumer purchasing power.

However, DBS said that was likely temporary.

“We advocate looking beyond these issues and position for an eventual recovery,” DBS said, adding it expected improvement ahead, driven by the lead up to expected elections and the King’s coronation as well as projecting a recovery in farm income.

It forecast earnings would grow in the fiscal first quarter ending 31 December, which marks both the peak season and a low base effect due to the year-ago quarter’s imposition of an excise tax.

DBS kept a Buy call, but lowered its target price to S$0.87 from S$0.94 after lowering its fiscal 2019 and 2020 earnings forecasts by 12-16 percent on lower sales volume and margins from spirits and beer. But it added that it still forecast earnings growth of 10-15 percent for the next two fiscal years.

It said the stock was trading at 17.5 times fiscal 2019 core earnings, which was well below its five-year historical average of around 22 times.

Less optimistic

However, OCBC was less optimistic than DBS on a recovery.

“We do not expect a sharp turn-around in terms of the operational outlook,” OCBC said in a note on Tuesday. “We continue to be wary on domestic economic weakness and the dampening effect of the increase in excise tax, which we had previously under-estimated.”

But while it said patience was needed on the earnings recovery and for ThaiBev’s Sabeco acquisition to pay off, it was also positive on the stock’s valuation, calling it attractive.

OCBC also kept a Buy call on the stock, trimming its fair value to S$0.85 from S$0.89 after earnings came in below its forecasts.

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